Stack the odds in your favor

10 Year-end Planning Ideas

With all the uncertainty in the markets, a negative political environment, a sour international outlook, and the ever present attack of inflation eroding your purchasing power, I thought it would be a good time to focus on the things we can control. Being proactive almost always has its advantages and I wanted to offer a few ideas that you might be able to use through the end of the year.

Maximize contributions to your retirement accounts if you can afford it. With the market being down right now, you are able to purchase stocks (and bonds) at a discount from where they were just 3-months, 6-months, or even a year ago. Buying the dip is a way to purchase more shares with the same contribution amount, and that helps to increase long-term returns. A second benefit of maximizing your contribution is the tax benefits. With pre-tax contributions, you are deferring income tax until you actually take the money out to use it…maybe 30-years or more from now. Lastly, you’ll be prepping yourself to live on less income now, while you build up your retirement. This helps to make the transition from worker to retiree a little easier cash-flow-wise. The flipside of saving for retirement: ‘can you afford not to?’

Conduct a year-end tax review with your tax-professional. Most people think of income tax as an April 15th event. It’s not!! Taxes are possibly one of your largest expenses, and there may be strategies to accelerate expenses, post pone income, delay a nondeductible expense, realize long-term gains, realize a loss to offset income/gains on another asset, or even use up your Flexible Spending Account. This last item is a “use it or lose it” account, so make sure you get to use your hard-earned income on you and your family.

Consider charitable giving and the two-effects realized by it: 1) You get to help out the charity of your choice, and 2) you get to write off a portion (or all) of the value for income tax purposes depending on individual circumstances. See your tax-professional for more clarity on your situation. How else can you accomplish a win-win situation?

Gifting to family members could be a strategy to reduce your ultimate estate transfer tax. The annual limit (without having to file a gifting tax) is $16,000 (in 2022) per person to an unlimited amount of people without using up any of their lifetime gift tax exclusion. Check with your estate planning attorney to see if this is recommended as the limits for overall estate tax exemption are currently at a fairly high level (i.e. $12M per person or $24M for a married couple). However, these levels can potentially change and be lower in the future if congress chooses to do so. Using this tactic in the right circumstances can help to eliminate a portion of the current 40% estate tax burden your heirs would incur.

Review your estate plan. Have you been putting off the formation of a family trust? Do you understand probate laws and the headaches that can be avoided by having a living trust? If you have a trust, have you reviewed it recently to ensure your intentions are still reflected? Reviewing your estate planning documents and strategies with an attorney can help to ensure your family is protected in the manner you chose.

Review your insurance policies. Life insurance comes in many flavors, terms, sizes, and durations. They can be simple policies (level term) or highly complex permanent policies. Running “in-force” illustrations is a place to start and can provide insight as to the ‘health’ of the policy at hand, and lead to decisions to modify premium payments, terms, or even the death benefit of the policy. Determining an insurance plan-of-action is best left to an insurance expert who knows the ins and outs, and dynamics underlying the functions and mechanisms of policies out there. Arktos Wealth Management can help with this.

Stack the odds in your favorReview your pay-stub!! This is often the most overlooked but definitive record of where your earnings are going. You should review your withholdings, pre-tax elections, post-tax elections, company sponsored insurance and benefit programs, and your actual income. Often times, HR/payroll makes changes on company 401k plans, payroll services, and other benefits, and may not transfer your selected options to the new system. I have seen ‘first hand’ where a client was inadvertently enrolled in something they had not selected. They had paid more than a $1,000 towards something they would never use. Upon review, we corrected it.

Review your last tax return. All too often, people prepare (or pay someone to prepare) their tax returns and send it off only to never review it again. I make it a habit of reviewing my clients’ tax returns to identify areas we may be able to improve upon. The form 1040 has all the information you (or your professional) need(s) to suggest improvements and adjustments to minimize the amount of taxes you legally have to pay. It can also expose area

Compare your emergency savings account balance to the balance at the beginning of the year. Have you been adding to it, or has it been shrinking? If the latter, you may be spending more than you are making. This could be indicative of a bigger issue and should be addressed immediately. Budgeting, creating a budget, and sticking to a budget are critical to long-term successfully cash management. Knowing the difference between ‘wants’ and ‘needs’ is paramount to this task, and can help spouses, partners, and families get on the same page for their common goals.

Plan some family fun vacations for the next year! This gives you something to look forward to, while allowing time to create a budget to pay for those well-deserve memories.

In summary, we cannot control tax rates, returns of the market, or actions created by other people. So, it is best to focus on items you can control. While this list is definitely not exhaustive, it does provide a starting point to help you gain some confidence and control of items that are within your power to change. As always, I am here to help my clients gain more control and to make better decisions with their hard-earned money. Give our office a call at (818) 249-4984!

 Arktos Wealth Management and Securities America Advisors LLC does not provide specific legal or tax advice. Please consult with your tax advisor or legal professional for guidance with your individual situation.